Who's to blame for U.S. housing debacle?

By Charlene Crowell -Guest Columnist- | Last updated: Feb 10, 2011 - 11:17:51 AM

Lawmakers would be well-advised to focus on the facts and to seek sustainable answers instead of new villains. Before the housing bubble burst, modest increases in Black homeownership were achieved. Now, the effects of the extended housing crisis have erased those same gains.

As the 112th Congress begins and new committees are formed, our nation's marathon housing crisis seems far from over and no sure cures to its billion-dollar economic effects have been identified. In the meantime, agencies and laws intended to expand affordable housing nationwide have now come under attack. So-called “risky borrowers,” the Community Reinvestment Act and two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, have all been accused of creating the lengthy downturn in housing and more than 2.5 million foreclosures.

Even a long-awaited report from the Financial Crisis Inquiry Commission, presidential appointees charged to provide an objective and thorough review of the still-unfolding dilemma sharply split along partisan lines as to the causes and effects of the economic crisis.

But according to the Center for Responsible Lending (CRL), an independent and nonpartisan research and policy organization, the culprits and leaders in the still-unfolding foreclosure crisis were clearly Wall Street firms that “securitized” subprime mortgages. A CRL Capitol Hill brief summarizes the findings. As Wall Street securitizers expanded the subprime market, Fannie Mae and Freddie Mac's market share diminished substantially. GSE losses were caused not by risky borrowers but by risky loans, frequently loans that went to borrowers with relatively higher incomes.

In part, the new brief advises, “It's well known that toxic subprime loans started the foreclosure crisis, and the disaster spread to other mortgages approved without properly qualifying borrowers. The facts show that Fannie Mae and Freddie Mac were followers, not leaders in the events leading up to today's foreclosure epidemic.”

“Securitization,” the process of bundling thousands of mortgage loans into investment pools and then re-selling pieces to investors enabled loosely-regulated lenders, says CRL, to make loans and then quickly sell them to private firms that created mortgage-backed securities.

CRL also refutes widespread charges of risky borrowers and Community Reinvestment Act loans as causes for the still-unfolding housing crisis. The truth is that 94 percent of subprime mortgage loans were made by institutions not covered by CRA.

“Mortgage loans purchased by Fannie Mae and Freddie Mac—including loans to lower-income borrowers—are performing better than the private market. As of June 2010, 13.35 percent of GSE loans to borrowers with credit scores under 660 were 90+ days delinquent or in foreclosure. By comparison, the Mortgage Bankers Association reports that the serious delinquency rate for subprime loans was over 28 percent,” says CRL.

To read the full CRL Capitol Hill issue brief, visit http://www.responsiblelending.org/.

According to the Center for American Progress, in the third quarter of 2010, the homeownership rate for Blacks was 45.0 percent. The homeownership rate for Latinos was 47.0 percent, and the homeownership rate for Whiteswas 74.7 percent.

Further, as the national unemployment rate hovers near 10 percent, communities of color are suffering more. The unemployment rate for Blacks was 15.8 percent in thefourth quarter of 2010, compared to 12.9 percent for Latinos, 7.3 percent for Asian Americans, and 8.7 percent for Whites, also according to the Center for American Progress.

What all Americans need—regardless of race or ethnicity—are solutions to shared problems, access to fair lending, and reasonable, transparent terms for all lending products.

Somebody should deliver that message to Congress.

(Charlene Crowell is the communications manager for state policy and outreach with the Center for Responsible Lending. She can be reached at [email protected].)

The Final Call